Simulating Massachusetts Municipalities' Recession Readiness: Early Warning of a Perfect Storm?

We simulate effects of two recessions on Massachusetts municipalities in light of their relative dependence on state aid, capacity to increase property taxes under Proposition 2½ constraints, growth, and non-discretionary costs. We also explore the efficacy of local government stabilization funds in light of current literature on stabilization funds, slack resources in general, and the state/local fiscal relationship. We found substantial variance in Massachusetts municipalities' recession readiness. Fifty-five (16 percent) municipalities have insufficient resources to weather a severe recession scenario without significant sacrifice due to reliance on state grants-in-aid, low property tax revenue growth, erosion of property tax revenue increments by increases in non-discretionary expenditures, and inadequate stabilization funds.